| There's good news for the developers of special economic zones. The decision by the empowered group of ministers to increase the minimum processing area in the case of multi-product SEZs to 35 per cent would not be binding in all cases. |
| The EGoM has decided that the Board of Approval would have the power to reduce the processing area for an SEZ to 25 per cent in some cases. |
| This would, however, be conditional on the board giving in writing why the condition was being relaxed and the developer having a valid reason for earmarking lesser area as a processing zone. |
| The EGoM, which met on June 6, had retained the minimum processing area for sector-specific SEZs at 50 per cent but had increased the minimum processing area for multi-product SEZs from 25 to 35 per cent. |
| The commerce ministry had been arguing for retaining the processing area for multi-product SEZs at 25 per cent on the ground that even internationally, in globally integrated SEZs like Shenzhen, Suzhou and Jebel Ali, processing area requirements varied between 20-25 per cent. They had gradually been increased in a 10-20 year period as the zones had developed. |
| The ministry had prepared economic models with processing areas of 25 per cent and 50 per cent which showed that the internal rate of return (IRR) reduced to 9 per cent when the processing area was increased to 50 per cent, compared with 18 per cent when the processing area was 25 per cent. |
| Officials pointed out that even infrastructure consultancy companies like IL&FS and the Indian Infrastructure Finance Corporation had pointed out that financial institutions were reluctant to finance projects including SEZs if the IRR was less than 12 per cent. |
| The cap of 150 SEZs being approved during the six-month period after the notification of the SEZ Act on February 10, 2006, would be reviewed by the EGoM after the period ends. Since February, only 69 SEZ cases have been approved by the board of approval. |
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